NEW COMPETITION LAW EXPECTED TO HAVE LITTLE IMPACT

C O N F I D E N T I A L SECTION 01 OF 02 HONG KONG 001854 SIPDIS STATE FOR EAP/CM AND EEB/BTA/TPP, STATE PASS FTC FOR THOMAS ROSCH, DOJ FOR STUART CHEMTOB E.O. 12958: DECL: 05/15/2019 TAGS: ECON EFIN EINV ETRD HK CH SUBJECT: NEW COMPETITION LAW EXPECTED TO HAVE LITTLE IMPACT ON HONG KONG BUSINESSES REF: A. 08 HONG KONG 1402 ¶B. 08 HONG KONG 708 Classified By: A/CG Christopher Marut for reasons 1.4 (b) and (d). ¶1. (C) Summary: A senior Hong Kong government (HKG) official told U.S. Federal Trade Commissioner J. Thomas Rosch on September 10 that a long-anticipated Competition Law will likely be submitted to Hong Kong's Legislative Council (LegCo) during its upcoming session. The official said the law should, however, have little impact on "business dynamics" here. A LegCo member expressed disappointment that the HKG intends to exclude government-owned enterprises from the law's purview. The HKG draft bill will also largely ignore corporate merger and acquisition activity and contain no criminal penalties for anti-competitive behavior. Calling the HKG's efforts "a good start on a relatively blank slate," Rosch acknowledged the difficulty of enacting a new statute that potentially affects many powerful constituencies. He told members of the American Chamber of Commerce (AmCham) that the Federal Trade Commission (FTC) intends to publish new Merger Guidelines by 2009 year-end, and he voiced his opposition to Obama administration plans to create a Consumer Financial Protection Agency. End summary. Background -------------- ¶2. (U) Commissioner Rosch met with Hong Kong government officials, academics and AmCham members on September 10-11 to discuss Hong Kong's proposed Competition Law and offer recommendations concerning its provisions. He also spoke to approximately 150 Hong Kong University law students about the FTC's anti-trust activities. Other than restrictions placed on the telecommunications and broadcasting sectors, Hong Kong has no specific law that addresses anti-competitive corporate behavior such as price fixing, bid rigging and monopoly-building (ref A). Responding to local concerns about such practices, the HKG initiated public consultations in 2006 regarding its proposed Competition Law. The ensuing debate among large companies, SMEs, consumer advocates and the general public regarding the statute's provisions has delayed presentation of a bill to the LegCo (ref B). Key LegCo Player Describes Frustration With Competition Law -------------- -------------- ¶3. (C) Hong Kong LegCo member and former Chairman of the Hong Kong Bar Association Ronny Tong has supported enactment of a competition law since his election to the LegCo in 2004. He regularly provides advice to the HKG's Commerce and Economic Development Bureau (CEDB),as it fine tunes provisions to be included in the Competition Law bill. In his September 10 meeting with Rosch, Tong said he expects the bill to be submitted to the LegCo during the 2009-2010 legislative session that begins in October. As one of the bill's key advocates, Tong is concerned that it may not adequately restrict anti-competitive practices. He said, "I've been forced to give up much, in order to move the process forward." ¶4. (C) Rosch said he reviewed the HKG's latest publicly available Competition Law proposals, as well as the American Bar Association's written feedback on them. He encouraged Tong's efforts and noted the difficulty of enacting such controversial legislation, especially given Hong Kong's paucity of existing statutes and regulations governing anti-competitive corporate behavior. Rosch cautioned, however, that Hong Kong's Competition Law would be "rather unique worldwide" if, as currently envisioned, it fails to stipulate criminal penalties for corporate cartel-like behaviors such as price fixing, bid rigging, and dividing up customers and markets. ¶5. (C) Tong expressed frustration that neither the HKG nor government-owned institutions will likely come under the Competition Law's purview, despite their involvement in "unfair competition" with private sector entities. As an example, he described complaints from the public-private consortium that owns the AsiaWorld-Expo convention center near the Hong Kong International Airport. After granting locally-owned New World Corporation a 40-year concession in 1988 to develop and manage the Hong Kong Convention and Exhibition Center (HKCEC),Tong said the HKG's Trade Development Council (TDC) has channeled all convention-related inquiries and business opportunities to HONG KONG 00001854 002 OF 002 the HKCEC. "They charge too much and it's difficult for event organizers to get the dates they want. The government should allow the new market entrant to compete on an equal footing with the HKCEC," he said. The new statute will likely provide little recourse for AsiaWorld-Expo to challenge TDC's actions, according to Tong. Professional Experience Needed, Says Rosch -------------- ¶6. (C) CEDB Under Secretary Greg So told Rosch that "the bill is almost ready" and the HKG wants to present the Competition Law to the LegCo by 2009 year-end. (Note: In a subsequent meeting on September 28 with the Acting Consul General, So suggested the bill will be presented by July 2010 - the end of the upcoming legislative session. End note.) So asked Rosch for advice concerning the HKG's plans to establish an independent review commission under the Competition Law. Rosch said the HKG should mandate minimum professional experience requirements for the new entity's commissioners, to avoid creation of a "dumping ground" for unqualified political appointees. "Reliance on the commission's professional staff alone can be insufficient, and you'll need highly qualified commissioners to ensure success," he said. ¶7. (C) So admitted that the HKG "does not want to do anything to materially change the business dynamics" in Hong Kong. Given the HKG's inexperience in prosecuting cases involving anti-competitive behavior, So said the government wishes to avoid prosecuting most Competition Law offenders. The CEDB has therefore included an "Infringement Notice Scheme" in the draft bill's text, under which the HKG will offer violators an out-of-court settlement fine of up to USD 1.3 million (HKD 10 million). Rosch said the FTC formerly used a similar notice-without-trial scheme, albeit without the power to fine the accused infringer, but discontinued the practice after being accused by industry watchdog groups of giving violators "get out of jail free cards." Rosch agreed to provide further advice and other assistance that may be requested by So, as the CEDB continues its work on the Competition Law. FTC Under Obama Administration -------------- ¶8. (U) Rosch told AmCham Trade and Investment Committee members on September 11 that the FTC under the Obama administration "is trying a lot more cases" than in prior years. To boost its prosecutorial success rate, the FTC has engaged experienced private sector litigators to mentor FTC staff lawyers and "battle the best and brightest lawyers from large law firms" hired by defendants in FTC-initiated lawsuits. Rosch said the FTC has also increased challenges to "already consummated mergers," and he said the FTC intends to publish revised merger guidelines by 2009 year-end that will include "some fairly major changes." Rosch Opposes Creation of CFPA -------------- ¶9. (U) In an interview with Reuters and during his September 11 meeting with AmCham members, Rosch voiced his strong opposition to the Obama Administration's June 2009 proposal to create a Consumer Financial Protection Agency (CFPA). He told AmCham, "The FTC and other existing government bodies can adequately protect consumers in this area, and it's a bad idea to set up a whole new agency to handle it." ¶10. (U) FTC Commissioner Rosch has cleared this cable. MARUT